B2B vs. B2C ...which is a better start-up?

B2B involves working capital that B2C does not. Can a B2B start-up grow like Uber. What are the challenges to funding a B2B start-up vs. a B2C start=up? Does a B2B need higher margin product/service? For example ..Uber collects, say 15% on each trip and lest us assume they would net 20% of the 15% i.e. 3% of each trip. Would Uber (or a similar start-up with different product/service) have been successful in fund raising if their model was a B2B?

BMW or Lexus, which is better? Point is none is better than the other. Are you going into a certain business industry because you thinking of money and profits or are you going in to solve a problem. As for Uber, it is simple, businesses targeted towards consumers are more likely to generate large-scale growth due to its "mass-based focus", hence Uber. On other hand, businesses targeted towards other businesses are likely to be more profitable/concrete on the longer run.

VCs want investments in huge markets >$10B, with disruptive and defensible technology, with a team they can trust and that has both domain expertise and passion for the business. They need to see a credible path at least $100M in net revenue with attractive customer acquisition costs, high customer lifetime value, and preferably attractive gross margins vs. the status quo or known alternative solutions. Your question is all about financial metrics. In absence of the rest of the story your question cannot be answered responsibly. You need a business plan with enough meat on the bones so that entrepreneurs and advisors can help you.

Thanks all. To clarify, let us assume a B2B Uber. Not scalable like B2C Uber, but still scalable. Specifically in certain international markets, this B2B logistics space is highly unorganized. There is a large opportunity to solve problems of scheduling, delivery, inefficiencies, under-utilized physical and human assets. My question is ...would a VC be interested in a business model with 3- 4% pre-tax, normal A/R and zero A/P?

I agree with LanVy, that the unique selling proposition of your offering is the most important factor as well as meeting your customers' expectations.

One of your original questions was about which is easier to fund. Lenders / investors are interested in profitability, revenue stream and collateral (in case the venture goes south) - regardless of a B2B or B2C business model.

The cost of money (financing) will vary depending on the risk to the lender/investor. If the business model does not allow for enough margin to cover the cost of money, financing will be very difficult (or very dangerous for the business owner).

We work only on B2B financing and often have these tough conversations with clients about how to value their business and seek alternative financing. It's not a one-size fits all solution. (And, it's not like you see on popular TV reality shows.)

Unless you have strong connections, B2B sales cycles are longer than B2C. You need to take that fact into consideration when you raise funds. Also, B2B is more service friendly than product. So, depending on what you're planning to 'sell', you may want to consider your strengths before doing so. Even if you plan to sell a physical product in both segments, B2B will turn into product + service business vs, B2C may stay as product.

Scott McGregor
Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

March 14th, 2016

For a representative fast growing B2B play take a look at Cisco in the 1980s through 1990s.

Some B2B plays are easier and lower entry costs than the corresponding B2C plays. For instance there are only a dozen or so manufacturers of dentures. It is trivial to build a lead database of all of them, and to call or visit I every one of them. if you had a new material for the appliances.

These manufacturers supply the entire dental market of a few 10s of thousands of dentists. A B2B SMB play could buy a list (since dentists are licensed) and do telesales to all of them for a few dollars a piece.

Millions of people will visit dentists this year. But only a small percent will need new dentures. You may have to advertise to millions just do discover a significant portion of your target segment so your cost per lead can be high and efficiency low. So building a consumer brand in this space can be much harder.